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TT Business Intelligence Report Vol. 1, No. 32, 16 October 2002 Business Intelligence, Crime, Corruption and Debt in C&E Europe and the former Soviet Union  UPCOMING CONFERENCES THE ADAM SMITH INSTITUTE'S "RUSSIA'S ACCESSION TO THE WTO" To take place on 16-17 October 2002 at the Moscow Marriot Grand Hotel, Moscow, Russia. For further information, tel: +44 (0)20 7490 3774, fax: +44 (0)20 7505 0079, email: [email protected], W: www.asi-conferences.com EUROMONEY'S "REGIONAL FINANCE & INVESTMENT CONFERENCE FOR SOUTHEASTEUROPE" To take place on 29-30 October 2002 at the Hotel Croatia, Dubrovnik, Croatia. For further information, tel: +44 (0)20 7779 8821, email: [email protected], W: www.euromoneyconferences.com INTERNATIONAL PROFESSIONAL CONFERENCES' "MONEY LAUNDERING IN CENTRAL ANDEASTERN EUROPE" To take place on 6-7 November 2002 at Andel's Hotel, Prague, CzechRepublic. For further information, tel: +44 (0)20 7529 8906, fax: +44(0)7387 4647, email: [email protected], W: www.ipc-conferences.co.uk/prague CROATIA CROATIA SET TO JOIN THE CENTRAL EUROPEAN FREE TRADE AGREEMENT Following a plenary session of envoys from the seven members of theCentral European Free Trade Agreement in Zagreb on Tuesday, theagreement reached at the recent CEFTA summit in Bratislava wasinitialled. Deputy Economy Minister Olgica Spevec initialled theagreement that clears the way for Croatia to join Bulgaria, the CzechRepublic, Hungary, Poland, Romania, Slovakia and Slovenia in theorganisation. According to Stanislav Kubinec, the leader of the CEFTAnegotiating team, if the agreement can be formally signed by the end ofNovember, Croatia could become a member at the beginning of 2003.According to Spevec, Croatian businessmen will need to concentrate moreon exports when they have access to the central European market. Poland,Hungary and the then Czechoslovakia, with the aim of preparing forintegration into Europe and developing a free market, formed CEFTA in1992. Slovenia, Bulgaria and Romania joined them shortly afterwards.Over the last three years, Croatia has met the three criteria for CEFTAmembership: membership in the World Trade Organisation, an associationagreement with the EU and free trade agreements signed with all CEFTAmembers. (NewsBase 10.x.02) CZECH REPUBLIC GOVERNMENT DELAYS SALE OF 51% OF CESKY TELECOM TO C-TEL UNTIL END OFNOVEMBER The cabinet on Monday delayed the date of the signing of a contract forthe sale of 51% of fixed-line operator Cesky Telecom to C-Tel by a monthuntil the end of November and moved the date for the debate on the draftcontract from October 15 to the end of October, Finance MinisterBohuslav Sobotka told journalists after the cabinet meeting. C-Tel is awholly owned subsidiary of Deutsche Bank, which is backed by Danishtelecoms firm TDC. The postponement in the deadlines was requested byC-Tel and recommended by privatisation adviser J.P. Morgan. According tofinance ministry spokesman Jaroslav Dedic the price and othercontractual terms are not affected by the delays. "The purchaser clearlysaid in its application that the consortium of Deutsche Bank isinterested in completing the transaction under the set terms includingthe purchase price of 1.82 billion euros," said Sobotka. The extra timeshould see representatives from C-Tel end talks with Telecom minorityshareholders and its subsidiary Eurotel, said Sobotka. KPN and Swisscomown 34% of Telecom, and US consortium Atlantic West, with which Telecomhad unsuccessfully negotiated the sale of the stake in the firm,controls 49% of Eurotel. Transport Minister Milan Simonovsky emphasisedlast week that in the sale of Telecom the state will demand that thebuyer first pay for the shares and only then will the shareholder rightsbe transferred onto it. The sale of the 51.1-% stake in Telecom is thebiggest privatisation deal in central and eastern Europe this year.(NewsBase 16.x.02) GROSS PUTS HEAD ON NATO SUMMIT SECURITY BLOCK Interior Minister Stanislav Gross says he will resign if securitymeasures introduced by the Czech authorities to secure the smooth courseof the NATO summit this November in Prague fail as a whole. Gross seesthree main potential security risks during the summit – street violence,activities of foreign secret services, and terrorism. The police willdeploy 12,000 men and women, including about 3,100 armed. Police saythey will be more active in combating protestors than during the IMFsummit in 2000 by preventing protestors from reaching cordons. Theauthorities are calling on people to avoid the centre of Prague,November 20-22. (PBJ 16.x.02) POLICE CHIEF REJECTS IMPLIED EU CRITICISM Czech Police President Jiri Kolar preempted criticism of Czech police bythe European Commission (EC) in the run-up to its annual assessmentreport on the Czech Republic. In an interview with BBC radio on 7October, Kolar stated that corruption continues to be a serious problemin the Czech Republic. However, in fighting economic crime, he said, thepolice are very efficient. Kolar also dismissed expected criticismconcerning the protection of the Czech border. "As for borderprotection, the EC seems not to have adequate information," Kolar said.In the report, which was made public on 9 October, the EC voices seriousconcern over corruption and economic crime in the Czech Republic. Italso says it is necessary to improve the protection of the state border.Kolar pointed out that the Czech Republic has successfully loweredillegal migration by 30 percent in the past three years. The problem ofcorruption cannot be reduced to mere bribery, Kolar said. The CzechCriminal Code has seven articles covering corruption in the broadersense. He mentioned bank crime, breach of trust, and abuse of publicoffice as forms of corruption that Czech police have been successful incombating. (RFE/RL 10.x.02) HUNGARY LURGI WINS EURO 60 MLN BUDAPEST CONTRACT Budapest Mayor Gábor Demszky and Environment Minister Mária Kóródi onTuesday declared Lurgi Energie und Entsorgung GmbH of Germany on Tuesdaythe winner of the general contract for the project to build flue-gasfilters and modernize four boilers in Hungary's only communal wasteincinerator, which burns 60% of the waste generated by Budapesthouseholds. The plan for the Euro 60 million project was approved by theBudapest City Council in 1993. Construction will begin in the spring of2003. The contractor promised to upgrade the first two boilers by July2004, and the second pair by the end of December 2005. The project willbring Hungary in line with the EU directive on waste incineration. (BBJ 16.x.02) EC REPORT STATES HUNGARY WILL BE READY TO JOIN EU IN 2004 Although the European Commission's report says that Hungary will beready for admission to the EU in 2004, the generally positive assessmentwas dampened by criticism primarily regarding corruption, obstacles tothe social integration of Roma, and a lack of institutions needed toreceive EU subsidies, the local media observed. Foreign Minister LaszloKovacs said that it shows great headway that Hungary was not "warned" onany subjects. He pointed out that the report urges Hungary to reach anagreement on implementing the controversial Status Law with neighbouringRomania and Slovakia. For his part, Jozsef Szajer, leader of theopposition FIDESZ party's foreign affairs section, said the previousgovernment led the country to the threshold of the EU and it is now upto the Socialist-Free Democrat government to represent nationalinterests in the final stage of accession negotiations. (NewsBase 14.x.02) LATVIA OUTGOING PARLIAMENT APPROVES GUNTIS RUTKIS AS HEAD OF NEW CORRUPTIONPREVENTION BUREAU The outgoing parliament has finally approved Deputy Chief of theSecurity Police Guntis Rutkis as the head of the new CorruptionPrevention Bureau, the local media reported. The post should have beenfilled by August 1, but three previous candidates have been rejected byparliament. President Vaira Vike-Freiberga praised the decision, saying,"Latvia can not afford to wait any longer until an institutionco-ordinating and raising the efficiency of the fight against corruptionstarts working," the media reported. The parliament elected in lastweekend's election will hold its first session on November 5. (NewsBase 15.x.02) POLAND PZU, WARTA VENTURE EAST IN SEARCH OF NEW MARKETS As the national insurance market has become saturated, two of thelargest insurance companies, PZU and Warta have decided to expand intoLithuania, Ukraine and Latvia. “Within the next two years we areplanning to enter the Ukrainian market, where we are carefully lookingat selling property and life insurance products. We are also analyzingpossible investments in Latvia,” said Piotr Kowalczewski, a member ofPZU’s supervisory board. He added that expansion into Latvia would meanthat PZU would acquire an already existing foreign company over there.The second largest insurance company, Warta, did not want to reveal anyspecific information about their expansion plans. “Our strategicpartner, Kredyt Bank, is already present in Lithuania and Ukraine. Wehave analyzed these markets and have a good idea of what we need to do.Now we have to start making hard decisions,” said Agenor Gawrzyal, thedirector of Warta. (WBJ 16.x.02) BRUSSELS RECOMMENDS POLAND FOR EU ENTRY IN 2004 In its report last week on the progress towards accession by theEuropean Union candidates, the European Commission (EC) recommendedPoland, along with nine other countries (Lithuania, Latvia, Estonia, theCzech Republic, Slovakia, Hungary, Slovenia, Malta, and Cyprus), foradmission to the EU in 2004, but simultaneously warned about the urgentneed for further reforms in key sectors (including agriculture, civilservice, and justice). Polish officials generally expressed satisfactionwith the EC assessment of their country's progress toward EU membershipbut also voiced concern that Poland's entry could be delayed if Irishvoters reject the EU enlargement treaty in the 19 October referendum.(RFE/RL 15.x.02) ROMANIA IFC MAY INVEST IN THE ROMANIAN COMMERCIAL BANK (BCR) The International Finance Corporation (IFC), the investment division ofthe World Bank, is looking at the possibility of investing in theRomanian Commercial Bank (BCR), according to local press reports. TheIFC may invest in BCR shares in compliance with regulations set out bythe government in the bank's privatisation strategy. The strategyoutlines the sale of the entire state-owned package in the bank. Of thestate's holding, 51% is to be sold to a strategic investor, 8% at mostto the bank's employees and up to 10% to the European Bank forReconstruction and Development (EBRD) and IFC. The IFC Board is toconsider granting a loan worth $75m aimed at supporting the developmentof BCR activities with private companies and individuals on November 21.BCR requires long term financing in USD in order to support the increaseof the USD credit portfolio, an important element in its development andcompetitiveness, according to the IFC. BCR owns 33% of the total assetsof the Romanian banking system and a national network of some 280offices. (NewsBase 16.x.02) RUSSIA TNK, SIBNEFT FORGE PARTNERSHIP Once cutthroat competitors, oil majors Tyumen Oil Co. and Sibneft haverevealed themselves in a new guise -- strategic partners. By the end ofthe year, Sibneft is to receive an 8.6 percent equity stake in theoffshore company TNK International Ltd., the main shareholder in the TNKand Onako oil holdings. In exchange, TNK is to receive a 40 percentstake of the Orenburgneft drilling company. Virgin Islands-registeredTNK International Ltd. has a charter capital of $50,000 and is 100percent owned by TNK Industrial Holdings Ltd., also an offshore company,which is in turn owned by Alfa Group and Access/Renova. TNKInternational's main assets include more than 90 percent of Onako, 29percent of Rusia Petroleum and 88.5 percent of the Ukrainian LINOSfactory. TNK International and Sibneft have been negotiating an exchangeof oil assets for the past two years. The reason for the drawn-outnegotiations was the privatization of Onako in 2000, when Sibneft boughta 42 percent stake in its subsidiary, Orenburgneft, while 85 percent ofOnako was auctioned off to TNK's owners, Alfa Group and Renova. The twocompetitors were forced to negotiate the division of the assets. At thebeginning of last year, they announced that Onako would be convertedinto a single share and Sibneft would get a 33.3 percent stake in theconsolidated company. But at the last minute, Sibneft pulled out of theexchange. The company wanted an option to sell its TNK stake at its ownprice, but TNK did not agree. Last week, however, the owners of the twoholdings reached a new agreement. On Monday, Alfa Group head MikhailFridman said in a statement that Sibneft would agree to trade its stakein Orenburgneft for about 8.6 percent of TNK International. He said thearrangement could be finalized before the end of the year. Sibneftpresident Yevgeny Shvidler confirmed that the two companies had agreedto exchange assets, but declined to give any details. Both parties viewthe deal as a win-win situation. Sibneft, which made $120 million fromits stake in Orenburgneft last year, will now get a stake in the profitsof a much larger company, while TNK will not have to spend money onbuying out Sibneft shares. (The Moscow Times 16.x.02) PUTIN TARGETS FOREIGN EXCHANGE President Vladimir Putin on Monday urged the government to easerestrictions on hard currency transactions now that Russia has beenremoved from an international blacklist of "hot money" facilitators.Putin praised the joint work by the government and lawmakers that led toRussia being stricken from the Financial Action Task Force's financialblacklist Friday, but said creating more stringent foreign currencyrules would be a step backward and hurt honest businesses and citizens."A comprehensive package of laws has been adopted and a financialmonitoring committee established ... but this does not mean that weshould tighten the screws," Putin was quoted by Itar-Tass as saying. "Onthe contrary, we should move toward currency liberalization. "Russiansshould have equal rights with citizens of any developed country. But atthe same time, we should achieve more transparency in the activities ofboth individuals and legal entities," Putin said. The president'sremarks echoed those made Friday by Prime Minister Mikhail Kasyanovafter he rejected a proposal on changes to the hard-currency regimesubmitted jointly by the Central Bank and the Finance Ministry, whichwas supposed to be presented to the Cabinet for debate Thursday. Theproposal would have lowered the amount of foreign currency earningsexporters must convert into rubles to 30 percent from 50 percent, whichKasyanov supports. But it did not commit to a deadline for abolishingthe mandatory sales altogether. It also would have imposed new controlsby giving additional powers to the Central Bank, such as being able toreimpose mandatory sales in certain situations, Kasyanov said. Instead,Kasyanov said he favored an alternative plan suggested by the EconomicDevelopment and Trade Ministry, which he called more liberal andconcrete. Economic Development and Trade Minister German Gref wants themandatory sales requirement lowered to 25 percent starting next year andscrapped completely in 2004. (The Moscow Times 15.x.02) RUSSIA, JAPAN WORK TO NORMALIZE RELATIONS Speaking to journalists after a Kremlin meeting on 14 October withvisiting Japanese Foreign Minister Yoriko Kawaguchi, President VladimirPutin said both countries are prepared to sign "a very solid document"during a January 2003 visit to Moscow by Japanese Prime MinisterJunichiro Koizumi, Russian news agencies reported. Foreign Minister IgorIvanov added that both sides are moving toward signing a peace treatythat would formally end World War II and mean the complete normalizationof relations between the two countries. Deputy Prime Minister ViktorKhristenko said an accord has been reached concerning the expansion ofenergy and transportation cooperation, ORT reported on 14 October. Inaddition to several oil-extraction projects near Sakhalin Island, inwhich Japan has invested a total of nearly $1 billion, Japanesecompanies will help transport oil from the island to the mainland. Thetwo countries also reached a preliminary agreement on Japaneseinvestment in a Russian-sponsored project to connect the Trans-Siberianand Trans-Korean railroads. (RFE/RL 15.x.02) TNK BEGINS TRIAL OIL DELIVERY TO UNITED STATES Tyumen Oil Company (TNK) President Semen Kukes has announced that TNKsent 840,000 barrels of oil to the United States strategic reserve lastmonth, gazeta.ru reported on 14 October. Kukes said the oil was shippedto Corpus Christi, Texas, from Novorossiisk aboard two tankers. He addedthat by the end of 2003, TNK -- together with Yukos and LUKoil -- hopeto supply about 400,000 barrels a day to the United States. (RFE/RL 15.x.02) VATICAN FUMES AFTER MOSCOW CHURCH PROPERTY IS TURNED INTO A BROTHEL The Vatican voiced outrage Monday after a church property in Moscow wasturned into a brothel, saying it was part of what it sees as along-running smear campaign against the Catholic Church in Russia. In astatement, the Vatican said Franciscan friars in the Russian capital hadrented out one of their apartments to a private individual who hadassured them it would be used for "charitable purposes." Instead, itbecame a house of ill repute with prostitutes dressed as nuns, theVatican said. Pope John Paul's spokesman, Joaquin Navarro-Valls, brandedthe incident "a despicable operation designed to discredit the …brothers … and through them, the Catholic Church." Navarro-Valls'statement said the episode and Russian television broadcasts of peoplein religious attire acting immorally was part of a campaign "bent ondamaging the reputation of the Catholic community." Relations betweenthe Vatican and Russia have been particularly tense recently, with threeCatholic priests being expelled in the past six months. (The Moscow Times 15.x.02) PRIME MINISTER AUTHORIZES PRIVATIZATION OF SLAVNEFT Mikhail Kasyanov signed on 10 October a directive initiating theprivatization the state's 74.95 percent stake in oil giant Slavneft,Russian and Western news agencies reported. The government's stake isworth an estimated $1.3 billion, and the sale is expected to be thelargest privatization deal in post-Soviet Russia. The government ofBelarus owns 10 percent of the company, while a 13 percent stake is heldby a trust fund controlled by oil companies TNK and Sibneft andbusinessman Mikhail Gutseriev. The rest belongs to minority investors."Vedomosti" named Sibneft -- which is controlled by Chukotka AutonomousOkrug Governor Roman Abramovich -- and Surgutneftegaz as likelypotential bidders. Gazeta.ru noted that former Sibneft executive YuriiSukhanov recently became CEO of Slavneft and argued that this givesAbramovich an inside track toward acquiring the stake. (RFE/RL 11.x.02) NARROW ESCAPE FOR NORILSK POLICE OFFICERS Police in Norilsk averted an alleged terrorist explosion in a nine-storyresidential building, ntvru.com and other Russian news agencies reportedon 11 October. Acting on an anonymous tip, police searched thebuilding's basement and found a bag containing a hunting rifle, agrenade, and several rifle cartridges. Upon closer examination, it wasdiscovered that a bomb containing 700 grams of explosive and anothergrenade had been attached to the bag. According to RIA-Novosti, adisaster was narrowly averted by a quick-thinking police officer whoheld the firing mechanism of the grenade in his hand after the pin hadbeen pulled out. (RFE/RL 11.x.02) DOES THE KREMLIN HAVE ITS OWN SOFT-MONEY PROBLEM? In a column in "The Moscow Times" on 9 October and an article in "Novayagazeta," No. 74, commentator Yuliya Latynina alleges that the Kremlincontrols a multimillion dollar "slush fund" to finance the candidatesits supports in State Duma and local elections. According to Latynina,the money for the fund comes from "the oligarchs" whose tax payments"fill the official coffers" and whose gifts "keep the black budgetafloat." Latynina estimates that, on average, supporting 100pro-government State Duma deputies costs the Kremlin $20 million, whilea single governor's campaign usually runs between $1.5 million-$2million. She suggests that "the entire Russian economy is built aroundthe black budget," while "the Russian elite is composed of those whohave access to it." She concludes that the overall social and economiccosts of the fund are huge, since "an oligarch who contributes a millionto the Kremlin slush fund receives by way of compensation a presidentialdecree that brings him hundreds of millions." (RFE/RL 10.x.02) UKRAINE UKRAINE REMAINS ON FATF LIST OF COUNTRIES LENIENT ON MONEY LAUNDERING Ukraine has remained on the Financial Action Task Force on MoneyLaundering (FATF) list of countries lenient on money laundering. Themain reason is the absence of a local law against money laundering.FATF member-states have been recommended to take measures againstUkraine from December 15 unless Ukrainian legislation is adjusted tomeet international standards by then. (NewsBase 16.x.02) JUDGE OPENS CRIMINAL CASE AGAINST KUCHMA Kyiv Court of Appeals Judge Yuriy Vasylenko has opened a criminal caseagainst President Kuchma in connection with charges by oppositionlawmakers that he violated 11 articles of the Criminal Code, includinghis alleged involvement in the illegal sale of military technology toIraq and the murder of journalist Heorhiy Gongadze, Ukrainian andinternational news agencies reported on 15 October. Vasylenko said hemade his decision on the basis of an appeal by lawmakers, documents fromthe ad hoc parliamentary commission set up to investigate the murder ofGongadze, and evidence included in the secret audio recordings made byformer presidential bodyguard Mykola Melnychenko. (RFE/RL 16.x.02) INFORMATION PROVIDERS NEWSBASE NewsBase is a leading provider of business and economic news and intelligence from Russia, Central Europe and the FSU. Daily bulletins and industry specific weekly reports backed by an archive containing over 10 million words combine to provide a comprehensive service to a global blue chip client base. Contact: Jon Laurijssen T: +44 (0)131 478 8537 F: +44 (0)131 478 7001 E: [email protected] W: www.newsbase.com, www.newsbaseworldmonitoring.com NEW WORLD PUBLISHING New World Publishing is a primary source of business-related information for Central Europe, through its publications the Prague, Budapest and Warsaw Business Journals. Contact: Mark Child T: +420 2 4608 6524 F: +420 2 4608 6501 E: [email protected] W: www.ceebiz.com, www.pbj.cz, www.wbj.pl, www.bbj.hu THE MOSCOW TIMES The Moscow Times offers readers an independent and precise view of the political, economic and business life of Russia. Contact: Andrew Boag T: +7 095 232 3200 F: +7 095 232 1761 E: [email protected] W: www.themoscowtimes.com RADIO FREE EUROPE / RADIO LIBERTY Radio Free Europe/Radio Liberty is a private, international communications service to Central, Eastern and Southeastern Europe; the Caucasus; and Central and Southwestern Asia funded by the U.S. Congress through the Broadcasting Board of Governors. Contact: Peter Baumgartner T: +420 (0)2 2112 2039 F: +420 (0)2 2112 2012 E: [email protected] W: www.rferl.org TEMPLETON THORP T +44 (0)20 7520 9380 F +44 (0)20 7504 8180 E [email protected] W www.templetonthorp.com |
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